| I do wonder what would happen if Paramount Skydance Corp. just did a “real,” executable tender offer for Warner Bros. Discovery Inc. Like: Last month, Paramount offered to pay $30 per share in cash for Warner, with the tender offer set to expire on Jan. 8. Paramount argued that this offered better value for Warner’s shareholders than Warner’s existing merger deal with Netflix Inc., in which Warner shareholders would get a mix of $23.25 in cash, $4.50 (or less) of Netflix stock and a share — of uncertain value — in a spun-out company that would hold Warner’s cable television assets. Warner’s board disagreed; it argued that the total value of the Netflix deal was higher than $30 and that Paramount’s $30 was uncertain, so it stuck with Netflix. But Paramount had launched a tender offer, so in some loose sense that was for shareholders to decide. If they liked the Netflix deal, they could ignore the tender offer and wait for the Netflix deal to close. But if they liked Paramount’s deal, they could tender their shares and get Paramount’s $30. If the shareholders all did that, they’d get the cash, Paramount would get the shares, and the Netflix deal would basically be moot. Warner’s board might prefer the Netflix deal, but if the shareholders preferred the Paramount deal they could just take it. As we discussed last month, though, that was not true in practice. Paramount’s tender offer had a number of conditions, with perhaps the two main ones being [1] : - Paramount’s deal (like Netflix’s) requires approval from antitrust regulators, which is a long process that had no chance of being finished by Jan. 8.
- Paramount’s deal was conditioned on signing a merger agreement with Warner’s board: It was not a “real” hostile tender offer that could get done over the board’s objections, but rather a way to put pressure on the board to eventually reach a friendly deal with Paramount.
My impression is that the first condition is the binding one: Paramount can’t buy Warner for months anyway, for regulatory reasons, so there is no way to close a hostile tender this month, [2] so it might as well try to get Warner’s board to negotiate (and to help with the antitrust filings). In any case, though, when Paramount launched its offer to pay $30 per share in cash for Warner’s stock on Jan. 8, everyone understood that that was not literally true; Paramount was not going to pay $30 per share in cash for Warner’s stock on Jan. 8. And in fact, on Dec. 22, Paramount extended the expiration date to Jan. 21, though you should not take that literally either. But in a world in which Paramount could have just paid $30 per share in cash on Jan. 8, would it have? Would Warner’s shareholders have tendered? Would they have preferred $30 in cash last week to Netflix’s offer of some amount of something sometime? Warner’s stock has not closed above $29.98 since Paramount launched its bid, and it ended last week at $28.885, which suggests that $30 in ready cash would have some appeal. But there’s no $30 in ready cash and the tender offer is, so far, mostly symbolic. When Paramount extended it on Dec. 22, it noted “that, as of 6:00 p.m., New York City time, on December 19, 2025, 397,252 Shares had been validly tendered and not withdrawn from the tender offer,” or about 0.02% of Warner’s stock. Instead, the move is to pressure Warner’s board to agree to a merger with Paramount. And so today: Paramount Skydance Corp. ratcheted up the stakes in the monthslong battle for Warner Bros. Discovery Inc., saying it plans to nominate directors to the board to thwart a merger with Netflix Inc. The company, run by David Ellison, also said it filed a lawsuit against Warner Bros. in an attempt to force out into the open more details about Netflix’s $82.7 billion takeover agreement, escalating an acrimonious bidding war between the media company and the streaming giant that has captivated Hollywood and Wall Street. … “While Paramount’s all-cash offer is easy to value, the board has shirked its duty of disclosure with respect to the complex, cash/stock consideration it has recommended the stockholders accept instead from Netflix,” according to Paramount’s complaint. Paramount is also planning to propose an amendment to Warner Bros.’ bylaws that would require shareholder approval for the company’s planned spinoff of its cable assets. That’s three things. First, Paramount wants Warner to agree to a merger agreement, but Warner’s board so far has said no. So: new board. Paramount says: The “advance notice” window for WBD's 2026 annual meeting opens in three weeks, and Paramount will nominate a slate of directors who, in accordance with their fiduciary duties, will exercise WBD's right under the Netflix Agreement to engage on Paramount's offer and enter into a transaction with Paramount.
If Warner’s shareholders prefer the Paramount deal, they can’t just tender into the offer and get cash. And they can’t exactly “vote for” Paramount’s deal: Warner’s board has accepted the Netflix deal, and presumably will only put that one to a shareholder vote. But if Paramount nominates directors, Warner shareholders can vote for them, and if they win then presumably they’ll take the Paramount deal. Second, the Netflix deal is structured to first spin off the cable assets (“Discovery Global”) to Warner shareholders, and then have Netflix close a merger for the rest of Warner. Paramount, though, wants all of Warner, including the cable assets, so it wants to block that spinoff. So “Paramount will propose an amendment to WBD's bylaws to require WBD shareholder approval for any separation of” Discovery Global. Third: Paramount’s basic argument is that its $30 in cash is worth more than Netflix’s offer. [3] Netflix’s offer includes $23.25 of cash and an amount of Netflix stock that was valued at $4.50 when the deal was signed, though it’s lower now. [4] So that’s a bit less than $27.75, plus whatever Discovery Global is worth. How much is Discovery Global worth? Well, Paramount says that it’s worth zero dollars, comparing Discovery Global to Versant Media Group Inc., another recent cable spinoff. Paramount argues that, given Discovery Global’s earnings before interest, taxes, depreciation and amortization, and Versant’s 3.8x EBITDA multiple, Discovery Global should have an enterprise value of $14.7 billion, which is a bit less than its expected net debt. So its value to shareholders should be more or less nothing, though Paramount concedes it an “illustrative M&A option value” of 50 cents per share. Warner’s board, meanwhile, seems to think that Discovery Global is more valuable than that, but Paramount’s point is that Warner never really makes that case. “WBD shareholders will receive value through their ownership in Discovery Global, which will have considerable scale, a diverse global footprint, and leading sports and news assets, as well as the strategic and financial flexibility to pursue its own growth initiatives and value-creation opportunities,” says Warner, but it doesn’t say how much value. Paramount wants to force it to put a number on that. From its lawsuit: Despite the Board’s extensive (and still evolving) rationalizations for its decision to favor a Netflix deal over one with Paramount, it has strikingly and tellingly omitted from its disclosures the basic financial and valuation information that is customary and necessary for stockholders to determine for themselves the relative value of the competing offers, and that underpin the Board’s purported determination that the Netflix offer is economically superior to the Paramount offer. The omitted information prevents WBD’s stockholders from comparing, as the Board purportedly did, Paramount’s simple and straightforward offer of $30 per share in cash against Netflix’s more complicated consideration— comprised of cash and Netflix stock that is subject to a collar and reduction for net debt—and the equity value of the Global Networks stub. ... The Board told WBD stockholders that it had concluded Paramount’s offer is “inferior to the value offered by the Netflix Merger . . . plus the additional value of the shares of [the Global Networks business] that WBD stockholders will receive,” and that Paramount’s offer “would deprive WBD stockholders” of the value created by a spun-off Global Networks. But it failed to disclose any valuation information about Global Networks whatsoever—a key value factor that the Board apparently wants stockholders to accept blindly. The basic framework in contested mergers and acquisitions is that the board of directors of the target gets to decide which deal is better. If Warner’s board thinks that the Netflix deal is better for shareholders than the Paramount one — for reasons of overall value or closing certainty — then it can pick the Netflix deal. But it does seem like (1) Paramount thinks its deal is worth more to Warner shareholders than Netflix’s is and (2) the shareholders agree, since Warner’s stock trades below Paramount’s deal price. If Warner’s directors think that the Netflix deal is better, Paramount wants them to show their work. And if they can’t, that might embarrass them into taking the Paramount deal instead. The US government generally pays for medical care for people who are at least 65 years old; this is called “Medicare.” In concept, you could imagine a couple of ways for the government to pay for Medicare: - When Medicare recipients get sick or hurt, they go to a doctor. The doctor treats them and writes up a bill for her services. She sends the bill to the government, which pays it. The more people get treated, the more the government pays.
- The government contracts with a service provider — a hospital network, a group of doctors, whatever — to treat Medicare recipients. The government pays the service provider a flat fee for unlimited treatments. When recipients get sick or hurt, they go to a doctor. The doctor treats them, but there is no bill. The government pays a flat fee. The more people get treated, the more the provider pays.
The first approach is called “fee for service.” It is fairly straightforward, though it has the problem of encouraging overtreatment: If providers perform lots of unnecessary treatments, they can get paid a lot, though you’d hope they would have ethical constraints on doing that. The second approach has the opposite problem: It encourages undertreatment, because the providers don’t get paid extra for doing more work. It has other advantages, though. Arguably it encourages efficiency: The providers have incentives to find the most efficient way to deliver health care, do cheap preventive care rather than expensive surgeries, etc. One way to put this is that in a fee-for-service model, the government acts as an insurer: If medical costs are unexpectedly high, the government pays them. In a flat-fee model, the service provider acts as an insurer: If medical costs are unexpectedly high, the service provider bears them, not the government. In practice, in the US, some Medicare is provided through a fee-for-service model, and some of it is provided through a more-or-less flat-fee model. In the fee-for-service model, the government pays doctors and hospitals. (This is sometimes called “traditional Medicare,” or “FFS” — fee-for-service — Medicare.) In the flat-fee model, though, the service providers are health insurance companies: They collect the flat fee from the government, pay doctors and hospitals for services, and take the insurance risk that the flat fee will be more or less than the actual costs. This is called “Medicare Advantage,” and the insurance companies are called “Medicare Advantage organizations,” or “MAOs.” If you think of this as an insurance question, you might think: Well, insurance companies don’t actually charge the same premium for everyone. A 95-year-old smoker should pay more for health insurance than a 65-year-old marathon runner. Someone with lots of preexisting conditions should pay more than someone with a perfectly clean medical history. And so in fact, under Medicare Advantage, the government pays MAOs more for some patients than others. If you are very sick, the government pays the MAO more for your treatment than if you are very healthy. There is an oddity here. In fee-for-service Medicare, the government pays more for more treatments. In Medicare Advantage, the government pays more for more sickness. Those things are correlated, but different. If you were in perfect health and a doctor gave you a lot of tests, regular Medicare would pay a lot but Medicare Advantage would pay a little. If you had tons of horrible diseases and a doctor gave you a Tylenol for them, regular Medicare would pay a little but Medicare Advantage would pay a lot. More specifically: Medicare Advantage creates huge incentives to diagnose illnesses, but not necessarily to treat them. If a Medicare Advantage provider can diagnose you with an arcane illness that doesn’t require treatment, it can increase its fees without increasing its costs. And, with advances in modern medicine, everyone has something. It is hard to get through modern life without some untreated illnesses. The trick, for the MAOs, is to diagnose as many of them as possible. The Wall Street Journal has had a great series of stories on, let’s say, the response to Medicare Advantage incentives. From August 2024: Millions of times each year, insurers send nurses into the homes of Medicare recipients to look them over, run tests and ask dozens of questions. The nurses aren’t there to treat anyone. They are gathering new diagnoses that entitle private Medicare Advantage insurers to collect extra money from the federal government. A Wall Street Journal investigation of insurer home visits found the companies pushed nurses to run screening tests and add unusual diagnoses, turning the roughly hourlong stops in patients’ homes into an extra $1,818 per visit, on average, from 2019 to 2021. Those payments added up to about $15 billion during that period, according to a Journal analysis of Medicare data. This got a lot of attention, and today the US Senate Judiciary Committee released a report on “How UnitedHealth Group Puts the Risk in Medicare Advantage Risk Adjustment,” suggesting that if your revenue depends on diagnosing as many illnesses as possible, you will optimize for that: Due to its robust data assets, advanced AI capabilities, and clinical documentation expertise, UHG appears to be uniquely suited to continuously identify new opportunities (e.g. new screening guidelines and diagnostic criteria) to capture untapped risk score-garnering diagnoses. For example, these opportunities may arise when UHG identifies, in part, through reviews of research studies and recommendations from clinical societies:
New screening practices or technologies;
Diagnoses that can be made based on probability rather than definitive testing;
Diagnoses that can be reflexively applied in the presence of other diagnoses; and
Diagnoses that do not have well-defined diagnostic thresholds.
One possible use of advanced artificial intelligence in medicine is to catch and treat diseases, but another possible use is maximizing insurance revenue. The Journal mentions one particularly good technique in the report: When patients were prescribed opioids to treat pain, the company advised medical providers to diagnose them with opioid dependence, even if they were taking the highly addictive medications as prescribed, the report said, triggering higher payments. That practice contradicts broader medical guidelines that indicate the diagnosis is meant for patients who abuse opioids, the report noted. When opioid patients’ treatment ended, the company advised employees to continue diagnosing the patients with opioid dependence in remission, according to the report. Under Medicare Advantage, a provider doesn’t really bill the government extra for prescribing opioids. But it can bill the government extra for treating people who are dependent on opioids, so there is an arbitrage. The S&P 500 index closed at 6,909.72 on Dec. 23, 2025. Where would you expect it to close the next day, Dec. 24? Well, this is not investing advice, but a reasonable first guess would be “about 6,909.72”: The single best predictor of tomorrow’s closing price of a stock index is today’s closing price, so you might as well start there. [5] Let’s say you thought it would close right around 6,909.72 on Dec. 24. How could you make a bet on that? Well, the options market offers lots of bets. Here is one. You could bet that the S&P 500 index would finish between 6,890 and 6,920 on Dec. 24, a narrow band around Dec. 23’s closing price. The market-implied probability of that happening was about, let’s say, 70%: You could pay $70 to make this bet, and you’d get back $100 if the index finished in the range (a $30 profit) but would lose your $70 if it didn’t. Should you make that bet? Well! Nothing here is investing advice. But let’s refine the question a bit. - Should you make that bet, in general? Like, having no further information, should you bet that the S&P 500 will close tomorrow within a tight range of today’s close? Again, not investing advice, but the generic answer is no: There are bid/ask spreads and other frictional costs in options markets, and there are a lot of people trading them who know a lot; if you don’t know a lot, then you should expect to lose money on a trade like this.
- Should you make that bet, if you have a reliable mathematical model, informed by historical data, showing that actually the probability of the S&P closing in that range is 80%? Well. Your 80% calculated probability is higher than the 70% market-implied probability, so this bet has positive expected value to you: If you do it every day, you will make money overall. So, yes, do it. In the real world you might ask questions like “why is my model so good” or “why do the professional options traders who will sell me this bet at $70 disagree with me” or “what makes me so special” or “what am I missing,” but in theory, sure, good trade.
- Should you make that bet, if a guy on the internet to whom you pay $5,500 a year for trading tips says that he has a reliable mathematical model showing that this is actually a positive expected value trade? Well! I have a lot of questions here! (They are similar to my questions in the previous item, but also include classics like “if he’s so good at trading why is he selling you tips?”) But if you have already committed to paying the guy $5,500 a year for trading tips, then presumably you think his trading tips are good, so, uh, sure, maybe, put $70 on this bet.
- Should you make that bet with 100% of your net worth? I mean? I personally would not make even a quite favorable bet with 100% of my net worth, but I realize there are people who disagree. Sam Bankman-Fried is notably one of them.
Again, this is not investing advice; it is just sort of a rough framework for thinking about questions like “should I bet on tomorrow’s closing price of the stock index” and “if so, how much of my wealth should I put on that bet?” My instinctive answers are “no” and “not much,” but it is important to point out that I am just a columnist and you aren’t going to get rich without making some bets that I personally would not find appealing. Anyway the S&P closed at 6,932.05 on Dec. 24, so you lose. Bloomberg’s Bernard Goyder reports: David Chau, a 32-year-old day trader, and his followers lost tens of millions on Christmas Eve in a blowup that exposed the perils of the Martingale strategy, which appears in the memoirs of notorious Venetian romantic Giacomo Casanova. The money was his own, capital entrusted to his hedge fund SPX MGMT, and that of a band of small-time investors paying $5,500 a year to have access to his trading plans. Chau is better known in the S&P 500 Index options market by the moniker “Captain Condor,” a reference to his trade of choice — the “iron condor” — that appears on a chart like the wings of a raptor. The trade itself — buying or selling a call spread above the current market and a put spread below it — is a relatively modest bet on whether or not a market will stay within a range. It’s become popular with retail trading sites, with sales of iron condors touted as a way to collect premium if markets stay rangebound. … The group had repeatedly sold iron condors over several days, betting the S&P 500 would remain in a tight range, and doubling up the position size each time when the index had a bigger move. By Dec. 23, the position in condors expiring the next day was up to some 90,000 contracts. The US options market is one of the world’s most transparent. Exchange-traded positions are visible to market participants, so the strategy’s vulnerability to a sizable loss was noticed even before it occurred. The call and put spread strikes were only 5 points apart — the move on Dec. 24 that sunk the trade was only 0.3%, hardly a spectacular swing. Selling the 6890/6885 put spread and the 6920/6925 call spread netted about $13 million in premium, and inflicted the maximum net loss, about $32 million, according to Bloomberg calculations. Chau appears to have paused his trading activity since Christmas Eve. Those iron condors are roughly the trade I laid out above — bet $70 to win $100 if the market stays within a tight range [6] — but with the important twist that, if you lose money on them one day, you double the bet the next day. That way, you win back your losses the next day, no problem. Or you keep doubling until you lose everything. MarketWatch reported: The options trader known as "Captain Condor" and his acolytes experienced a wipeout last week that incinerated tens of millions of dollars and cost some investors their life savings. … The fatal flaw - what finally caused Chau and his crew to lose most or all of their trading capital - was his use of the Martingale betting system. In the Martingale system, the bettor doubles down after each loss, hoping to recoup their money and then some. After a streak of mounting losses, Chau and his followers risked it all on Christmas Eve and saw the last of their capital wiped out as the S&P 500 SPX tallied a record closing high. … In interviews on podcasts, Chau said he had calculated the chances of a total loss to be vanishingly small, and that the strategy could still be profitable even if only a small number of trades actually panned out. In digital advertisements circulating on social-media platforms like Instagram and Facebook, Chau and his team had characterized the strategy as a reliable way for investors to generate income with just five minutes of trading a day. Yes. Well. Here is a Wall Street Journal profile of Captain Condor from April: Chau, who trades full-time from his Nevada home, calls himself an introvert. “I just like chilling at home, doing my own thing,” he said in an interview. Still, there are moments when he does sound more like his alter-ego. “The market is a battlefield, right? You have to be like a soldier on the front line, and you need to have mental fortitude,” Chau said. ... “It has a tremendous amount of risk,” said Brent Kochuba, founder of SpotGamma, a derivatives-data firm. “I think the only way that ends is bad. “If he knows what he is doing, great. But the size is kind of crazy. Doubling down on each trade is literally gambling.” Yes. And here’s Chau’s X post on Christmas, after the losses: The premise of our strategy is not about avoiding losses, it’s about generating positive expectancy. Positive EV in this strategy is accepting that these events will happen because it’s a probability based system, but if you started with x$ and doubled or tripled the amount, you take off principle and scale the rest with house $. In a nutshell, yes we are hurt but I don’t … give up. We will regroup and try again. “Positive EV in this strategy is accepting that these events will happen because it’s a probability based system,” but surely it also means not betting your whole bankroll on one roll of the dice? Congressional stock trading | It is currently illegal for members of Congress to trade stocks using inside information that they get from their congressional service. People do not seem to trust, though, that this prohibition is enforced. I used to think that there was a fairly simple solution to this problem: Ban Congress members from trading stocks at all. Why do they need to trade stocks? Trading individual stocks, I used to think, is sort of a weird hobby for individuals with demanding non-financial jobs (like being in Congress). Buy diversified index funds, don’t trade stocks with or without inside information, problem solved. I am now less confident in that opinion, though, for several reasons: - I really did think, a few years ago, that trading single stocks was a weird hobby. But I cannot deny that, now, it is a very mainstream hobby. Now everyone wants to YOLO meme stocks. Why shouldn’t Congress?
- It seems to me that a lot of the inside information that you might get from your job in Congress is essentially macro information: not which stocks will go up but rather whether the market as a whole will go up or down. Putting Congress in diversified index funds — but letting them trade frequently — doesn’t solve that.
- These days, “stocks” are kind of quaint. The way for people in government to make money on inside information, these days, is with various crypto boondoggles or prediction markets, neither of which is covered by stock trading prohibitions.
Still, whatever, here’s this: House Republicans including GOP leaders are lining up behind a stock-trading crackdown that they think is their best shot at addressing long simmering concerns about lawmakers potentially profiting off insider information. Rep. Bryan Steil (R., Wis.), chairman of the Committee on House Administration, took the lead on drafting the bill that would prevent House and Senate lawmakers from buying additional individual stocks. He has the blessings of House GOP leadership and has secured buy-in across the various GOP factions for the “Stop Insider Trading Act,” which he plans to formally introduce Monday. … Under the plan, while lawmakers couldn’t make new purchases of individual stocks, they would still be allowed to buy and sell investment funds that are diversified. The measure wouldn’t require lawmakers to sell any of the individual stocks they already own, but it would establish a mandatory mechanism for members to file a public notice at least seven days, and no more than 14 days, in advance if they intend to sell a certain individual stock. If lawmakers change their minds, they can withdraw the notice by a certain date. I suppose if members of Congress have to file public notices at least seven days before they sell individual stocks, someone will use those notices as a trading signal. Do you think they’ll have alpha? Positive or negative? “This is how monetary policy is made in emerging markets with weak institutions, with highly negative consequences for inflation and the functioning of their economies more broadly.” JPMorgan Trading Desk ‘Cautious’ on US Stocks After Fed Probe. Capital One, Amex Shares Sink on Trump’s Credit-Card Threat. Trump Says He’s Inclined to Exclude Exxon From Venezuela. E.P.A. to Stop Considering Lives Saved When Setting Rules on Air Pollution. The Son King of Hollywood. AIG edges back towards risk two decades after financial crisis bailout. This Is Who Companies Call When They Want to Become a Bank. Gold and silver under scrutiny as index changes spark wave of bullion sales. Leveraged luxury: fall of Saks Global to scorch US business stars. What a New Betting Market for Housing Prices Means for Home Buyers and Sellers. UK private equity firms sharply increase use of offshore funds. Private equity backers offload record amount of old fund stakes. The Dream of a Florida Retirement Is Fading for the Middle Class. China’s ‘Are You Dead?’ app checks in on growing cohort of people living alone. If you'd like to get Money Stuff in handy email form, right in your inbox, please subscribe at this link. Or you can subscribe to Money Stuff and other great Bloomberg newsletters here. Thanks! |
